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JB HI-FI's surprise surge this week is likely to challenge the short-selling positions of hedge funds that have banked on consumers pulling away from discretionary spending.

Almost one in five JB Hi-Fi shares (18.57 per cent) is held by hedge funds, making it the most shorted stock in the S&P/ASX 200.

The retailer's upbeat earnings announcement on Monday took the market by surprise and triggered a buying frenzy further fuelled by funds trying to cover their short positions.

As more discretionary retailers prepare their first-half results, analysts say fund traders could be forced to retreat from other short positions.

''There is a fairly wide-held view by hedge funds that discretionary retail is the one to short,'' said Bell Potter's head of research, Peter Quinton. ''Those hedge funds would have to be very, very nervous at the moment about their short positions [and] I suspect they will begin to wind those positions back.''

Six of the top 10 most shorted stocks are discretionary retailers, including JB Hi-Fi, Myer, David Jones and Harvey Norman.

The second most shorted stock is Iluka Resources, with 16.26 per cent of shares with hedge funds. Third is Fairfax Media, with 15.57 per cent.

Discretionary retail has been targeted by hedge funds on the assumption that consumers watching their spending would cut back on items such as flat-screen TVs and electronic equipment.

In the case of Fairfax, Mr Quinton said hedge funds were weary of advertising revenue. ''If the domestic economy is weak, advertising is very sensitive to GDP growth. If you're a bit bearish on GDP growth, you're bearish on advertising,'' he said.

Jacqueline Fernley, head of research at Wilson HTM Investment Group, said recent surprise profit announcements might prompt shorters to exit their position.

''Given we've had two retail results and two significant surprises, there's an argument to suggest that they might mitigate some of their risk prior to the results,'' she said.

But she admitted there were still legitimate headwinds facing the discretionary retail sector.

''They are absolutely still there. It's just that there are a number of drivers going on in the marketplace.''

Mr Quinton said hedge funds had been caught by surprise. ''For whatever reason, they didn't believe what they were seeing. And now they're caught,'' he said.

But Daniel Liptak, head of alternative research at Zenith Investment Partners, said the money lost to short-selling this week would only be a small part of fund portfolios. ''As a complete market, Australia is much less short-sold than the rest of the world.''